Study Finds Physical Plus Digital Is Best Retail Strategy

Omnichannel might be the buzz word, but brick-and-mortar still plays the pivotal role in value creation.

Omnichannel might be the buzz word, but brick-and-mortar still plays the pivotal role in value creation.

In an A.T. Kearney study, “On Solid Ground: Brick-and-Mortar Is the Foundation of Omnichannel Retailing,” the conclusion is that value creation — brand-building and product awareness — is distinct from value capture, the channel where the sales transaction occurs. Further, 90 percent of all retail sales are transacted in stores, and 95 percent of all retail sales are captured by retailers that have physical locations.

Stores can provide consumers with the sensory experience of the merchandise, as well as immerse themselves in the brand experience, in ways that a digital format can’t, even if they ultimately go online to make their purchases. That makes the store an important component in contributing to the conversion of sales, a factor retailers should consider when determining how to allocate resources and investments across different shopping channels.

Given the importance of the physical-store format, the A.T. Kearney study concluded that the future of retail is still “solidly anchored in the brick-and-mortar channel.” The debate then isn’t over digital or physical, but how best to develop omnichannel strategies where each consumer touch point adds value to maximize customer satisfaction and retailer profitability where stores remain the foundation of a retail strategy.

The study looked at product purchases as part of a shopping journey: beginning with product discovery, moving to trial and test, purchase, and finally, delivery or pickup. It noted that while consumer preferences determine how and where value is created and captured, the preference for stores is “more pronounced for high touch-and-feel categories, such as apparel and accessories,” and the physical store is involved at various stages of the shopping journey in 71 percent of online sales, the study found.

By category, the study found the in-store channel preference highest at slightly less than 60 percent for the discovery of apparel and accessories items. Health and beauty scored highest at slightly less than 90 percent when it came to trying and testing products.

By age, it wasn’t a surprise that seniors as a group had the highest percentage for preferring the in-store experience across all components of the shopping journey. Millennials ranked the lowest among the groups who said they preferred stores, choosing instead multiple retail channels. Surprisingly, teens as a whole placed ahead of Millennials and even Gen Xers in their preference for the in-store experience. A.T. Kearney concluded that this was critical for retailers and brand-builders who can leverage the teen preference for in-store shopping to cultivate lifelong relationships.

A.T. Kearney also found that a retail strategy is best thought of as “physical with digital.” Viewing a retail strategy through two channels “hinders retailers’ ability to create a seamless, end-to-end customer experience.”

The study found that there’s profit potential for retailers with a strong store base plus digital channels: increased shopper loyalty, sales lift and cross-channel sales. Based on data from retailers, 70 percent of online consumers live within a physical store’s trade area. Click-to-brick retailers — Internet retailers such as Bonobos and Warby Parker who are adding a physical presence to their online platforms — see e-commerce sales lifts of three to five times in the built-out markets.

The report showed the advantage in-store and online channels have playing off of each other, citing studies indicating that 23 percent of consumers purchase more items when picking up an online order from stores and up to 20 percent of shoppers who return an online purchase in-store will make an additional purchase.

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